Economist: Exports will have moderate effect on US natural gas price

HOUSTON — The principal opposition to U.S. exports of liquefied natural gas might have a new foil: Economics 101.

The chief economist of an oil industry trade group says the chemical industry is wrong to be too concerned that exporting LNG from the U.S. will boost the price of gas it buys, as industry data show there could be a lot more U.S. natural gas supply than meets the eye. Increased gas production could, in turn, fuel a response to rising international demand and keep prices relatively low, said John Felmy, chief economist for the American Petroleum Institute.

Felmy, who spoke with FuelFix before debating a lobbyist for natural gas distributors at a University of Houston event Tuesday, mixes his data analysis with some anecdotal evidence.

“I’m from the hills of Pennsylvania, near Williamsport, which is dead center of the Marcellus Shale development, and some folks tell me you see an enormous amount of gas that hasn’t been hooked up yet,” Felmy said.

Study: Exports will increase volatility of US natural gas price

There likely will be an increase in the price of natural gas after LNG exports hit the global market, but it may not be as high as the chemical industry fears. The question comes down to how much natural gas U.S. producers pump into the market, Felmy said.

U.S. drilling data, he said, hides a crucial fact: While exploration drilling for natural gas has stayed relatively flat since prices collapsed from late 2011 to 2012, development drilling has dropped off quite a bit. That means producers are drilling more to keep their land leases than to produce natural gas.

The data “tells me there’s probably a flat supply curve with a lot of gas waiting to be hooked up,” Felmy said. In other words, selling LNG to international buyers would stoke natural gas drilling activity back up in the U.S.

Big international buyers like China and Japan are expected to fuel demand for natural gas for several years, and exporters could send their LNG tankers there for much lower shipping costs once the Panama Canal is widened in coming years, Felmy said.

So far, the Department of Energy has approved four LNG export projects along the Gulf Coast, but 16 more are waiting in the wings for approval.

It’s possible some export facilities will never be builtThe amount of LNG capacity in the combined projects approaches half of U.S. production.

But the DOE should approve them anyway and  “let the market figure it out,” Felmy said.